With its stock price depressed since accounting irregularitiescame to light in one of its divisions, Baker Hughes Inc. and two ofits senior officers now have been named in securities fraudlawsuits filed last week in U.S. District Court for the SouthernDistrict of Texas. Suits were filed on behalf of investors whobought Baker Hughes common stock May 3 through Dec. 8.

The suits charge that during that period defendants issuedinflated financial statements in violation of generally acceptedaccounting principles. On Dec. 8, after the close of U.S.securities markets, defendants said the company’s accountingdepartment had discovered “various accounting issues” at its Inteqdrilling services unit which could have a cumulative pretax effect”in the range of $40 million to $50 million, including the possiblerestatement of prior periods.” Baker Hughes acknowledged in pressreports that these “accounting issues” were “irregularities,” whichare generally defined as intentional misstatements or omissions ofamounts in financial statements. On this news, the price of BHIcommon stock dropped $3 3/8 to $19 1/4 per share, after falling aslow as $15 per share earlier in trading Dec. 9.

Baker Hughes is said to have been caused to report falsefinancial information for its 1999 first, second and third fiscalquarters due to fraudulent accounting practices at INTEQ.

“The company is in the process of quantifying the extent andimpact of these issues,” Baker Hughes said in a Dec. 8 pressrelease. “The company believes the cumulative pretax negativeeffect could be in the range of $40 million to $50 million,including the possible restatement of prior period results. Thecompany does not believe the accounting adjustments will requireany additional cash outlays. In light of these circumstances, thecompany has announced that it will be postponing its $200 millionnote offering intended to refinance current maturities of debt andfinance the purchase of a seismic vessel.” A Baker Hughes spokesmansaid the company had no comment on the lawsuits.

Blake Hutchinson, a Howard Weil analyst in Houston who followsthe company, said the shareholder suits are not uncommon after anannouncement such as the one made by Baker Hughes. The accountingwoes could dog the company for a while, he said.

“They’ve had other problems in the past and now investors aresort of wondering what’s next. That’s the real problem for BakerHughes right now. Is there something out there that we don’t see.The reason that they had to come forward at this time with theaccounting irregularities… is that they were prepared to do adebt offering and this was deemed a material issue. One of the bigproblems right now is they had to release this information beforethey really knew the depth and breadth of it. It was a fairly vague[Dec. 8] press release to begin with and was not concrete as towhether this was going to be the end of what needed to be done toput to rest people’s fears that there might be more issues in otherbusinesses outside of Inteq.

“There’s just still a lot of uncertainty as to what thelong-term effect is going to be and that’s going to plague thestock until they can answer some questions about that. This processreally started, from what I gather, about a year ago with thechanging of the CFO for the Inteq division. It could loom over thestock for a while now.”

Investors who bought Baker Hughes securities during the periodhave until Feb. 7 to file a motion to be a lead plaintiff in theclass action. Baker Hughes shares closed down 31 cents Friday at$18.94.

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